Earnings call transcript: Yamaha Corp. Q1 2025 sees revenue dip amid tariff impacts

Yamaha Corporation reported a decline in revenue for its fiscal first quarter, attributing the decrease to exchange rate fluctuations and additional U.S. tariffs. The company’s stock price fell by 4.06% following the announcement, reflecting investor concerns over the challenges faced by the company in key markets. According to InvestingPro data, Yamaha maintains strong financial health with a current ratio of 3.36 and more cash than debt on its balance sheet. Despite these setbacks, Yamaha remains focused on innovation and strategic investments to drive future growth.

Key Takeaways

• Revenue for Q1 2025 fell by 7.4% year-on-year to ¥103.9 billion.
• Yamaha’s stock dropped by 4.06% after the earnings release.
• The company is investing in new product lines and structural reforms.
• Exchange rates and U.S. tariffs significantly impacted profits.
• Yamaha projects a full-year revenue of ¥452 billion.

Company Performance

Yamaha Corporation’s performance in the first quarter of fiscal 2025 was marked by a notable decrease in revenue, down 7.4% from the same period last year. The decline was primarily due to adverse exchange rate impacts and increased U.S. tariffs, which together accounted for a ¥2.9 billion reduction in profits. Despite these challenges, the company is making strides in product innovation and strategic investments aimed at long-term growth.

Financial Highlights

• Revenue: ¥103.9 billion (7.4% decline YoY)
• Core Operating Profit: ¥4.7 billion (4.5% operating profit ratio)
• Net Profit: ¥2.4 billion
• Exchange rate impact: -¥1.1 billion
• Additional U.S. tariffs: -¥1.8 billion

Market Reaction

Following the earnings announcement, Yamaha’s stock price decreased by 4.06%, closing at ¥971.9. This drop reflects investor concerns over the company’s ability to navigate ongoing tariff challenges and exchange rate fluctuations. The stock movement places Yamaha closer to its 52-week low, and InvestingPro analysis suggests the stock is currently undervalued. With a 34-year track record of consistent dividend payments and a current dividend yield of 2.68%, long-term investors might find the current price attractive. For detailed valuation metrics and 8 additional exclusive ProTips, visit InvestingPro’s comprehensive analysis platform.

Outlook & Guidance

Looking ahead, Yamaha projects a full-year revenue of ¥452 billion, a decrease of ¥10.1 billion compared to the previous year. Despite this, the company expects a net profit increase of ¥9.1 billion, reaching ¥22.5 billion. Yamaha is focusing on new product development, including digital pianos and electronic drums, and strategic investments in areas like Music Connect and professional audio equipment.

Executive Commentary

Jun Nishimura, Yamaha’s Financial Presenter, emphasized the company’s commitment to mitigating tariff impacts, stating, "We will continue to take all possible actions to mitigate the effects of these tariffs." Nishimura also highlighted Yamaha’s dedication to innovation, saying, "We are creating a new musical experience."

Risks and Challenges

• Exchange rate volatility: Continues to impact profitability.
• U.S. tariffs: Significant cost burden affecting margins.
• Market saturation: Challenges in mature markets like Europe and China.
• Supply chain disruptions: Potential risk to product availability.
• Competition: Increasing pressure from global and local competitors.

Yamaha Corporation faces a challenging landscape as it navigates external pressures from tariffs and exchange rate fluctuations. However, with a focus on innovation and strategic investments, the company aims to overcome these hurdles and drive future growth.

Full transcript - Yamaha Corp. (7951) Q1 2026:

Jun Nishimura, Financial Presenter/Executive, Yamaha Corporation: Hello everyone, my name is Jun Nishimura. I would like to present to you the financial results for the first quarter of the fiscal year ending March 2026. Please turn to the first page titled "Q1 Highlights." First, an overview of the financial results. These are the results for the first quarter of the fiscal year ending March 2026. While the slowdown in audio equipment was as expected, the recovery pace for musical instruments, particularly pianos, was slow. Additionally, the appreciation of the yen contributed to a decline in revenue. Although we worked to contain SG&A, profit declined due to factors such as the yen appreciation, the impact of additional U.S. tariffs, and a deterioration in the product mix caused by a decline in sales of audio equipment for professional use.

Regarding the full-year forecast, we have revised our full-year earnings forecast downward to reflect the impact of the additional U.S. tariffs currently anticipated, along with our planned countermeasures. Going forward, we will continue to take all possible actions to mitigate the effects of these tariffs. Next, I would like to explain about the performance summary. Please turn to page 3 titled "Q1 Summary." These figures represent the actual performance for the first quarter. The revenue was ¥103.9 billion, the core operating profit was ¥4.7 billion, resulting in an OP ratio of 4.5%. The net profit for the quarter was ¥2.4 billion. The exchange rates for the first quarter are as shown here on the slide. Net profit was minus ¥7 billion year on year. As for the revenue, it declined 7.4% year on year, but when excluding the impact of the exchange rate, the decline was 2.8%.

Next, please refer to page 4, a waterfall chart which illustrates the factors behind the changes in core operating profit. This chart compares results with the previous fiscal year. In Q1 of the fiscal year ending in March 2025, the core operating profit was ¥9.2 billion. From there, we saw a negative impact of ¥1.1 billion due to exchange rates. Next, the impact of additional tariffs, which we’ve incorporated into this quarter’s results, amounted to a negative ¥1.8 billion year on year. The following section, decrease in sales, production, and model mix, etc., shows a negative ¥2.7 billion overall. This portion includes some countermeasures taken to offset the impact of tariffs. However, in total, these factors led to a ¥2.7 billion decrease in profit compared to the previous year.

A key factor here is that in the first quarter of the previous year, we saw a significant increase in shipments of entertainment PA equipment, including the backlog orders. By contrast, this year shows a marked decline from the high baseline. In terms of model mix, we also saw a decrease in high-margin entertainment PA products. Regionally, there was a notable decline in sales in Europe. These elements contributed significantly to the overall negative impact. In addition, regarding the structural reforms in piano manufacturing that we have been implementing, the positive impact from these efforts amounted to ¥600 million in Q1. Together with the containment of SG&A expenses, we landed at ¥4.7 billion in core operating profit for the quarter. Please turn to slide 5 showing results by business segment.

In the musical instruments business, revenue totaled ¥66.5 billion with operating profit of ¥2.1 billion, resulting in an OP ratio of 3.1%. In the audio equipment business, revenue was ¥33 billion, and operating profit came to ¥2.3 billion with a profit ratio of 7.0%. For others, please refer to the figures shown on the slide. Next, please refer to slide 6, which outlines our business performance outlook. For the fiscal year ending March 2026, we forecast revenue of ¥452 billion, representing a decrease of ¥10.1 billion year on year. Core operating profit is expected to be ¥32 billion, a decrease of ¥4.7 billion compared to the previous year. The OP ratio is projected at 7.1%. Net profit is forecasted to be ¥22.5 billion, which represents an increase of ¥9.1 billion year on year. As for the exchange rate assumptions, please refer to the rates shown on the slide.

Next, please refer to slide 7. This slide presents the factors behind the changes in our full-year forecast using a waterfall chart. The top section compares the current forecast with the previous fiscal year. Starting from the previous year’s actual core operating profit of ¥36.7 billion, we expect a negative impact in exchange rates of ¥3.1 billion over the full year. In addition, the impact of tariffs is projected to be a negative ¥11.2 billion. Regarding the impact of tariffs, in addition to the reciprocal tariffs announced on April 2, there is also the previously imposed 20% tariff on shipments from China. The combined effect of these tariffs resulted in a negative impact of ¥11.2 billion, as shown here. Within this, the positive contribution from increasing sales, production, and model mix amounts to ¥7 billion.

Included in the figure is a ¥6.2 billion element reflecting countermeasures implemented to mitigate the tariff increases. Additionally, the effects of the structural reforms in piano manufacturing carried out in the previous fiscal year are expected to contribute a positive ¥2 billion for the full year. This aligns with the results we previously presented. Furthermore, there were one-time processing expenses last year, including the yearly impairment of parts and materials. These expenses are not expected to occur this fiscal year and thus have a positive impact on the current forecast. The SG&A is expected to be minus ¥1.3 billion, which means that there is an increase in cost. However, this increase reflects strategic investments in growth areas such as new business development, Music Connect, and audio equipment for professional use, all of which are key focus areas for driving future growth.

At the same time, we continue to exercise discipline by controlling expenses in other areas, including IT costs, non-profitable businesses, and segments where revenue is expected to decline. We remain committed to maintaining a balanced and focused approach. Next is a chart comparison versus previous projections. The prior forecast projected operating profit of ¥40 billion, but the impact of tariffs has now been revised to a negative ¥8.6 billion. The difference between the ¥11.2 billion negative impact shown in the upper chart and the ¥8.6 billion in the lower chart is attributable to the 20% tariff on shipments from China that was implemented prior to April 2. Next to that, the increase in sales, production, and model mix, etc., there is a positive ¥0.4 billion. Included in the figure is a ¥3.6 billion element reflecting countermeasures taken to offset the impact of tariffs.

However, this positive figure is partly offset by other negative factors, including declines in revenue from the musical instruments segment, reductions in production volume, and challenges in achieving targeted price adjustments. As a result, the net impact is presented as a positive ¥0.4 billion. Regarding SG&A, there is a positive factor of ¥0.8 billion resulting from expense containment efforts. This reflects further cost reductions compared to the previous forecast, leading to an operating profit forecast of ¥32 billion. Next, please turn to slide 8, which presents the performance forecast by business segment. For the musical instruments business, revenue is projected at ¥293 billion, with an operating profit of ¥20.5 billion, representing a profit ratio of 7.0%. For the audio equipment business, revenue is forecast at ¥139 billion, with an operating profit of ¥11 billion and a profit ratio of 7.9%. The figures for other businesses are shown on the slide.

Next is an overview by business segment. Please refer to slide 10. First, the musical instruments business. In the top right quarter, we show the Q1 performance as well as the full-year projection. For the first quarter, guitar sales continue to grow, while piano sales remain sluggish, resulting in a decline in revenue. In the China market, we are seeing a halt in the downward trend. However, piano sales, primarily in China and other regions, remain weak, leading to a significant revenue decline. In the digital musical instruments, digital pianos continue to recover, but due to the impact of tariffs, growth in North America has slowed, and we expect revenue to remain roughly flat year on year. Sales of wind, strings, percussion instruments, and guitars performed well, contributing to increased revenue in those categories.

Regarding the full-year projection, although we expect a decline in North America due to the impact of tariffs, recovery in markets outside China is anticipated to drive overall revenue growth. Piano sales are expected to decline, reflecting weak demand in both the U.S. and China. In contrast, the digital musical instruments are projected to see revenue growth supported by recovery in Europe and other regions. Sales of wind, strings, percussion instruments, and guitars are expected to remain strong, with an increase in sales. Next, please refer to slide 11. This slide shows the full-year projection by major product category. Excluding the impact of the exchange rates, we forecast the following year-on-year revenue changes: pianos 97%, digital musical instruments 102%, wind, strings and percussion instruments 103%, and guitars are double-digit growth at 111%. Next, please turn to slide 12, which shows revenue by region. In Europe, we forecast 105% year-on-year growth.

From the second quarter onward, we will implement various recovery measures targeting different markets, and these efforts are factored into the 105% forecast. For China, we anticipate a continued decline in piano sales compared to the previous year, resulting in a forecast of 96%. In other markets, including emerging countries, we expect growth of 107%, reflecting our planned performance. Next, please turn to slide 13, which covers the audio equipment business. Starting with Q1, in the audio equipment for professional use, formerly referred to as the B2B audio equipment, and the audio equipment for mobility use, previously called the automotive product, the revenue growth has temporarily plateaued. In the audio equipment for consumer use, which was formerly known as the B2C product, the home audio business scaled down.

This slowdown reflects a strategic focus on narrowing sales regions and product lineups to better target the hobbyist market from last fiscal year. The audio equipment for professional use exceeded the plan but fell short of the strong results achieved in the previous year, mainly in Europe. Sales of audio equipment for mobility use declined as previously expected in China. As for the full-year projection, revenue from audio equipment for professional use is expected to level off, and revenue is expected to decrease temporarily due to a decline in sales of automotive sound systems in China. Next, please refer to slide 14. This slide shows the sales performance for each of the three segments, each compared against the previous fiscal year. The audio equipment for consumer use is projected at 99%, for professional use at 100%, and for mobility use at 85%.

Next, please turn to slide 15, which represents revenue by region. Sales in Japan showed significant growth, driven primarily by the expansion of audio equipment for mobility use, as well as growth in network equipment. In North America, revenue is projected at 99% year on year. In Europe, revenue is projected at 94%, reflecting a temporary adjustment phase following the peak demand for entertainment PA systems. Sales in China declined sharply to 59%, primarily due to the decrease in sales of audio equipment for mobility use in the China market. Other regions experienced slight growth, as indicated here. Next, regarding other businesses. In the first quarter, revenue increased for both the automobile interior wood components and factory automation (FA) equipment. For the full-year projection, we anticipate continued recovery in these areas, with revenue growth expected for both automobile interior wood components and FA equipment.

Next, please turn to slide 18 for other financial figures. First, regarding the balance sheet as of the end of Q1, cash and cash equivalents increased by ¥3.3 billion. On the other hand, a significant change was seen in trade and other receivables, which decreased by ¥9.8 billion. This is primarily attributable to seasonal fluctuations between the end of March and the end of June. Regarding liabilities and equity, current liabilities decreased by ¥4.4 billion, primarily due to the settlement of outstanding payments, resulting in a reduction of liabilities. As for the forecast as of the end of March 2026, cash and cash equivalents are projected to be ¥96 billion, mainly impacted by the decline in net profit for the period. Inventory is expected to be ¥142 billion, down ¥8 billion from ¥150 billion at the end of March in the previous fiscal year.

Next, please refer to slide 19, which covers ROE, ROIC, and shareholder returns. First, regarding ROE, due to the impact of tariffs and other factors, the initial target of 6.3% has been revised downward to 5.0%. The cost of shareholders’ equity has been calculated at 6.9%, as shown at the top of this slide. As of May 8, this figure was 7.4%, so it has decreased by approximately 0.5 percentage points. The main factor behind this change is a reduction in the beta value. Similarly, the WACC used for ROIC has decreased from the previous 7.2% to 6.6%. Our forecasted ROIC remains at a challenging 4.9%. Regarding shareholder returns, the annual dividend per share is set at ¥26, as indicated in the lower part of the slide. Stock splits conducted in the second half of last year are combined with the first half and shown after the splits.

Compared to the previous dividend of ¥25.3, this represents a dividend increase, and there has been no change to the dividend forecast for this fiscal year. Regarding cross-shareholdings, the value has fluctuated, resulting in the ratio falling below 10% to 9.7%. Finally, please turn to slide 22, which highlights the key topics from Q1. As part of the reconstruction of a strong business foundation, we have launched new products that pursue intrinsic product value refined through technology and sensitivity. These products include digital pianos, electronic drums, routers for corporate use, and condenser microphones. Below that on this slide, regarding Yamaha Music Innovations, our new base established in Silicon Valley, discussions have begun with other companies aimed at driving digital transformation and improving productivity.

In the middle section of the slide, regarding "Evolving to Create the Future," we have created the OMOTENASHI Guide for Biz to realize universal design of words and sounds, and the adoption of it is expanding. It has started to be used at the EXPO 2025 pavilions and is being introduced to JR East. Additionally, as we deepen collaboration with other companies, technologies, and external resources, we are creating a new musical experience. One example is the proof-of-concept experiment for G-Pop over MOQ. We have also highlighted here the technology that enhances production efficiency and flexibility of virtual production. Regarding setting sustainability as a source of value, just recently we announced the launch of a public-private partnership with the Ministry of Education, Culture, Sports, Science and Technology, and JICA to expand music education initiatives in the Philippines. With this, I would like to conclude my presentation.

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